The coalition says it wants to improve the quality of British lives even in hard times. So let's take ministers at their word, and ask them today, following the welter of headlines about raising the pension age: how do they want us to grow old? Here is a huge question for us all, one that is not all bad news, but that can be turned into a disaster by the wrong policies.

The good news comes from the statistics of a population living longer. It is itself an old story, but one that continues all the time and is so dramatic the numbers are worth dwelling on. You don't need to go back to the 1950s or 60s. Today's toddlers have a considerably longer life expectancy even than today's young adults, born during the recession of the early 90s – nearly five years more of life for the luckiest group, which happens to be males in London.

There are big differences of course. Males born today in Glasgow can expect to live to just 70, while girls born in Kensington and Chelsea can assume they will make it to nearly 89. But the improvements continue everywhere. Men born in 1991-93 had a life expectancy of 73.4 years; for boys born in 2006-7 it was up to 77.4. Four more years of life! For women it rose from 78.8 years to 80.

For all our problems and failures, this is a fantastic achievement – for the health service and for better education on diet and lifestyle. Behind the numbers, it shapes today's Britain – the grey-haired cyclists and runners, the ever-increasing cost of healthcare, and the expectation of millions of people that they can look forward to perhaps 30 years of "free" time after they stop working.

The bad news, obviously, includes the cost of it all. Unaffordable pension pots and retirement age changes are the stuff of serious policy making. A pension structure which took it for granted that many of us would work until our early sixties and then die a year or two later, is hopelessly out of kilter with modern realities. It is surely inevitable that the pension age has to rise.

But this is about more than pensions. We also need to look at what kind of work will be available for the 65-pluses, how flexible working can help a gradual move to retirement, how discrimination against older workers can be eliminated. You can't just delay retirement if there are no jobs for older workers.

The other side of our longevity is not about work at all. It's about what happens to us when we need care. Who do we want to look after us? And in what surroundings? On all of that, at least, a lot of cross-party work has been done and the "tough decisions" which so delight the new government have already been taken after a long consultation by the last government. The only slight fly in the ointment is that the Tories, leading the coalition, have fled a million miles from the difficult choices, and the Lib Dems seem to have scarpered with them.

Here's the nub of the problem. An ageing Britain needs more carers and more care homes, but has no current way of paying for it. This is about your parents, about you, and about your children. We need to stop confusing social care with the health service, even though many people believe that help with basic needs, such as washing, dressing or preparing a meal is all provided as part of the NHS in England. It's not.

So, as the former health secretary, Andy Burnham, warned yesterday, ring-fencing the NHS budget will mean more cuts in social care – and will have the effect of increasing NHS costs because hospital wards quickly fill up with people who cannot be sent home. Go and look at a big hospital almost anywhere and you will see it.

So money has to be found to pay for the social care that so many of us will need. You might find it by making everyone work much longer. But that's unfair to manual workers and it's too big a change to be pushed through quickly. You could radically raise taxes. This lot won't and argue, anyway, that it would kill off the recovery. The Tories talk enthusiastically about a voluntary £8,000 down-payment at 65 for residential care. That's frankly useless: the people who will insure themselves tend to be the minority who need it least – and even a Conservative spokesman, Stephen O'Brien, said it wouldn't raise nearly enough. Compulsory insurance, on the other hand, will be seen as just another tax. So what to do?

Andy Burnham had been working ferociously hard with Norman Lamb of the Liberal Democrats and – for a short period only – with the Tories, on a really serious, detailed study of the problem. He'd come up with the idea of a 10% levy on estates, to be collected at death. It would pay for free social care for all – the first National Care Service. But Andrew Lansley, then his Tory shadow, promptly dubbed it a "death tax" and, scared by the headlines, Gordon Brown ran for the hills. Interestingly, in the new coalition government, Lamb has been kept well away from health and welfare departments. Perhaps he knows too much.

Is it unreasonable to suggest that now the fierce and sometimes cowardly politics of the pre-election period are history, it is time to rethink all this? If the coalition can swallow its words on VAT, mansion taxes, inheritance tax and so much else, how about not ring-fencing the NHS but looking instead at a new deal on health and welfare that adjusts Britain for longer, thus frailer, lives?

The so-called "death tax" is actually a sensible levy. By definition, by the time you pay it, you don't mind. Your family might; though why families should expect to inherit everything even when the aged relative has spent years in costly state-funded care beats me. But it needn't mean that the family home must be sold. As Burnham points out, a modest remortgaging would cover almost every case. And, of course, it would be progressive without being agonising.

The more I look at the Burnham plan, shelved before the election after being killed off by a phrase, the more it seems a realistic, civilised proposal. The new government has announced a commission to look into all this, but really, that's unnecessary – the work has all been done.

What is needed is political leadership, good policy-making and a tiny tincture of courage. The answer is at hand. Coalition: if you are serious – reach out and pick it up.